2EA – Energy in 2018

With 2017 behind us, and what a year it was, 2018 is now upon us. We have taken everything that is coming up in 2018 and outlined it in this article. From the increase in your bills to transport, new reporting measures and even smart meters. Energy in 2018 is our most comprehensive article to date.

Energy costs will continue to rise so it is important now more than ever to put energy in your financial concerns for 2018 and beyond. We cannot stress this enough, especially with Climate Change Levy (CCL) rates on the increase. Lowering your energy costs and reducing your energy demands is a long-term strategy that can benefit your business. Moving beyond short-termism ensures a better and more sustainable future both in terms of business and at home.

Levies and Taxes

Climate Change Levy (CCL)

With the scrapping of the Carbon Reduction Commitment (CRC) coming up and the loss transferred to the increase in CCL rates over the coming years. Many people and businesses will call CCL a new or ‘upcoming’ tax during 2018/2019. However, this is not the case, the Climate Change Levy has been around since 2001 and is embodied in the finance act.

For the next two years, CCL will increase with 2020, 2021 and 2022 figures scheduled to be announced in the 2018 budget.

The Chancellors Budget 2016 announced the rebalancing of gas and electricity main rates. In order to ensure a better consistency between portable fuels for commercial premises not connected to the gas grid, the government must freeze the CCL main rate for LPG at the 2019-20 level until April 2022.

From April 2018, we will be producing a brief paper on the cost effects of CCL rates 2018 vs cost effect of CCL rates 2019 across an array of sectors. We will also be looking to work with professional bodies and tradeshows to help business affected by these rates better understand the implications of CCL and what they can do to mitigate this cost.

Climate Change Levy Main Rates 2017 - 2019

Taxable Commodity

Rate from 01/04/2017

Rate from 01/04/2018

Rate from 01/04/2019

Electricity (£ per kWh)

0.00568

0.00583

0.00847

Natural gas (£ per KWh)

0.00198

0.00203

0.00339

LPG (£ per kg)

0.01272

0.01304

0.02175

Other taxable commodities (£ per kg)

0.01551

0.01591

0.02653

Exemptions for Mineralogical and Metallurgical Processes

The Autumn Budget 2017 has announced that the government will legislate in the Finance Bill from 2018 to 2019 to make minor amendments on the way the exemptions from CCL energy used in the mineralogical and metallurgical processes are defined.

The scope will remain unchanged, but other the changes made will ensure the exemptions remain operable after the Britain exit the European Union (EU) and address business concerns about how the exemptions apply in landlord-tenant situations. These changes will take effect from spring 2019.

Aggregates Levy

The government will freeze Aggregates Levy rates for 2018-2019 at £2 per tonne, but will return to index-linking the Levy in the longer term. Following consultation, the government has decided against introducing an exemption from the Aggregates Levy for aggregates extracted when laying underground utility pipes.

Reporting Schemes and Directives

There are many reporting schemes and directives passed down into British law via the EU, along with voluntary schemes from other sources such as the International Organisation for Standardisation (ISO). Some view these as red tape to doing business. But these can benefit business if done correctly and if identified energy savings are found and implemented adding value to the business. New reporting schemes are on the horizon.

ISO 50001

ISO 50001 is an ISO Energy Management Standard. It is recognised as the standard practice framework for managing your energy performance and addressing your energy costs, while also helping you to reduce your environmental impact and meet emissions reductions targets.

Earlier this year, a revision of the ISO 50001 standard took place at the Clean Energy Ministerial (CEM8) and it was given a major boost, with plans to revamp it by the end of next year.

An adequate amount of progress and consensus has already been made to start the revision of the standard. As a result, the ISO 50001 standard has now been moved to a draft International Standard, ready for revisions and improvements to be made. Ideally, it will not take long to make these revisions and the publication of the new edition of ISO 50001 will take place at the end of 2018.

The main change to take place in the 2018 version of the framework will be the incorporation of the High-Level Structure which offers improved compatibility with other management systems standards.

However, there will also be other improvements within this version to make sure that the key concepts related to energy performance are clear for small and mid-size businesses.

With links to the Energy Saving Opportunity Scheme (ESOS). The Department of Business, Energy and Industrial Strategy (BEIS) have been informed of the requirement to change or acknowledge the standard revision.

Energy Saving Opportunity Scheme (ESOS)

The EU Energy Efficiency Directive entered into force back in November 2012. The Directive aims to drive improvements in energy efficiency across the EU and, as a result, the Energy Saving Opportunity Scheme was created, requiring all large (non-SME) enterprises to undertake energy audits every four years.

The Energy Saving Opportunity Scheme seeks to minimise the administrative burden on businesses and includes realising synergies with existing policies and requirements. The Energy Savings Opportunity Scheme (ESOS) is a mandatory energy assessment and energy saving identification scheme for large undertakings (and their corporate groups).

ESOS Phase Two is still going ahead as planned. The Environment Agency (EA) has already issued two newsletters regarding Phase One non-compliance and the importance of starting audits for ESOS Phase Two.

We can not stress the importance of undertaking these assessments as soon as possible, this is not Phase One. Participating organisations have had and do have plenty of time to undertake audits and identify savings before 5th December 2019.

Streamlined Energy and Carbon Reporting (SECR)

The energy reporting sector for the United Kingdom is still in its infancy compared to other sectors. With the important issues of rising energy costs and climate change. The government understand that the industry needs to be improved while maintaining business as usual. With the removal of the Carbon Reduction Commitment in 2019, the government is seeking to implement a new and improved reporting system.

The Department for Business, Energy and Industrial Strategy (BEIS) is currently in the planning stage of the new Streamlined Energy and Carbon Reporting scheme which is likely to include ESOS, among other reporting structures into one reporting scheme that will need to go to the board.

This will improve the way in which businesses report their energy use, and provide businesses with the information needed to identify how they can reduce energy bills.

MEES/DEC/EPC

The Minimum Energy Efficiency Standard, Energy Performance Certificates and Display Energy Certificates are all covered under one section of this article because they all play a crucial synergy role in the sector.

The legislation behind Display Energy Certificates will not change. This went to Parliamentary committee in 2016, and the outcome is that they will stay in place for public buildings above 250 sqm.

It is worth noting that private sector organisations can use DEC’s as their type of building is covered by the system software and many continue to do so year on year.

The Minimum Energy Efficiency Standard is a new standard coming into force in 2018. It aims, through the use of Energy Performance Certificates (EPCs), to prevent landlords renting out properties that fall below a certain rating from A-G on an EPC.

Landlords of non-domestic private rented properties, including public sector landlords, are not eligible to rent to new or existing tenancies their properties if they fall below an EPC band rating of F or G. This comes into force on 1st April 2018.

For landlords of domestic private rented properties. The building must have an EPC rating of E or better.

For landlords, this means that to rent their properties, they need to undertaker an EPC audit. This audit must produce a band rating of E or better.

Carbon Market

Carbon Reduction Commitment (CRC)

The government will continue with plans to close the CRC Energy Efficiency Scheme following the 2018-2019 compliance year. The government will drive energy efficiency by implementing the previously announced increase to the main rates of the Climate Change Levy from 2019.

Carbon Reporting Framework

Consultation at BEIS on new and streamlined energy and carbon reporting framework has begun. This will replace some existing schemes, such as the reporting element of the CRC Energy Efficiency Scheme, and align with mandatory annual greenhouse gas reporting by UK quoted companies. See SECR under Reporting Schemes and Directives.

Total Carbon Price

The Autumn Budget 2017 has announced that the government is confident with the total carbon price, currently created by the combination of the EU Emissions Trading Scheme (EUETS) and the Carbon Price Support. It is set at the right level and will continue to target a similar total carbon price until unabated coal is no longer used. This will deliver a stable carbon price while limiting costs on business.

Transport

Electric Vehicles

From April 2018, there will be no benefit in kind charge on electricity that employers provide to charge employees’ electric vehicles.

Fuel Duty

The freezing fuel duty for the eighth year in a row, saving the average driver £160 a year.

Smart Meters

Smart Meters within the commercial sector have been around for some time. However, smart meters for domestic properties have been slowly making their way into British households. Currently on the market is Smart Metering Equipment Technical Specifications: first version (SMETs1).

The issues that have arisen with these meters are that each supplier has their own smart meter connected to a mobile network. When a customer wants to switch energy providers, these smart meters then become obsolete, and a new smart meter must be fitted. The second issue is that meters have on multiple occasions either billed too much or too little and in some cases have found that LED lighting on dimmable settings confuse these SMETs1 smart meters. From this, SMETs2 will be coming into force in 2018 or 2019, meaning the programme for this new set of smart meters is on track.

Renewables, Markets and Other

Capacity Market

Participants of the 2018 Capacity Market were able to bid for contracts in auctions held four years prior to the delivery date, meaning successful contracts for the 1st October 2018 took place back in December 2014. Some additional auctions will be held a year prior to delivery, with the aim to capture capacity from demand-side responders, while also allowing secondary trading of capacity obligations secured the first time around.

Auctions will follow the ‘descending clock’ format, starting with offers of £75/MWh and reducing until the minimum price is reached; at which point the capacity offered by bidders is equal to the generation required.

The Department for Business, Energy and Industrial Strategy (BEIS) announced late last year that it would cut the derating of battery projects by 80% in upcoming auctions. For short-duration batter projects, this could become unprofitable. Further amendments were changed within the capacity market.

The department said its review of the auction rules was prompted by “(a) emerging evidence that market signals were driving the deployment of limited duration batteries that could generate continuously for a maximum of 30-60 minutes, and (b) initial analysis from National Grid that suggested that the duration of stress events may frequently exceed this.”

“This raised concerns regarding the potential for storage to be over-rewarded in the Capacity Market relative to its ability to contribute capacity during longer stress events, which in turn could lead to a reduction in security of supply.”

Enhanced Capital Allowances (ECAs): Energy-Saving Technologies

The list of designated energy-saving technologies qualifying for an ECA, which support investment in energy-saving plant or machinery that might otherwise be too expensive will be updated through the Finance Bill of 2017-2018.

First Year Tax Credits

The government will extend the First Year Tax Credit Scheme until the end of this Parliament, thereby making sure that loss-making companies are encouraged to invest in energy-efficient technology. The credit rate will be set at two-thirds the rate of corporation tax.

Renewable Obligation Certificates (ROCs)

ROC’s scheme will close to all grace period applicants in spring 2019.

Reducing Plastics Waste

The government will launch a call for evidence in 2018 seeking views on how the tax system or charges could reduce the amount of single-use plastics waste, building on the success of the existing plastic carrier bag charge.

Sustainable Investment in Energy

The government will continue to support low carbon electricity as it becomes more cost-competitive, including the £557 million for further Contracts for Difference. The government is also committed to keeping energy costs as low as possible.Therefore, in order to protect consumers, the government will not introduce new low carbon electricity levies until the burden of such costs is falling.

On the basis of the current forecast, this means there will be no new low carbon electricity levies until 2025. All existing commitments will be respected.